Redundancy Payments Service – Good news for directors!!!!!

When a company is placed into a formal insolvency process and employees are made redundant, they can claim certain entitlements from the Redundancy Payments Service (“RPS”).

Directors have often been unable to claim as they have often ‘fallen short’ of being able to determine their employee status. In addition, many directors pay themselves a very low salary and top up their remuneration with director’s fees and dividends.

The basis for determining a director’s entitlement is their actual wage and dividends and director’s fees are excluded from any calculation.

However, the RPS have just confirmed that if the director’s weekly wage falls below the National Minimum Wage (“NMW”), the rate of pay used by the RPS will be uplifted to the NMW.

The RPS will require directors to confirm in writing that they were employees and that they require an uplift to the NMW.

The directors will also have to confirm that there are no sums owing to the company and if there are sums owed then the RPS will not pay out.

The RPS will also cross refer with HMRC and if it transpires that directors have claimed incorrectly then they can issue penalties and a maximum fine of £20,000.

In line with Section 230 of the Employment Rights Act 1996 (ERA) and other relevant case law, a director’s claim will be assessed upon receipt by the RPS with regards to their employment status and their entitlement to a repayment from the National Insurance Fund.

The statutory elements of the claim will be considered for repayment where it is regarded that they have been an employee of a company – if it is decided that the claim ‘falls short’ of employee status, it will be formally rejected.

Payments made by the RPS are under section 220 of the ERA and can only include payment for services provided under a contract of employment for a week’s pay – dividends should be emitted from this calculation alongside remuneration of a director’s fee.

Amounts owed to the ‘employer’ by the ‘employee’ may be offset in accordance with Rules 14.24 and 14.25 of the Insolvency Act (2016) – any payments due from the RPS may be offset against outstanding director’s loans.

The RPS acts in the public interest and will reject claims that are deemed ineligible – should a director wish to contest such decisions they may do so through an employment Tribunal.

For more information on bankruptcy, liquidation, administration and all the other insolvency procedures, or should you or your company be facing financial difficulties and you need to chat, please telephone Charlotte Hutchinson on 01377 257788 and she will make you an appointment with one of our insolvency professionals at our Driffield, Hull, Grimsby, Scunthorpe or York offices.  Our initial meetings are free and without obligation.  Meetings can be held virtually or in any of our offices whilst observing the socially distancing guidelines.

Because we are an independent insolvency practice, we keep our overheads low and have put systems in place to deal with simple liquidations at an affordable price of from £1,995 + VAT + Disbursements.  Our MVLs are from £995 + VAT + Disbursements.

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